Are your employees cutting their pension contributions?

More and more people are downsizing contributions into their workplace pension schemes – or stopping contributions altogether. This emerging trend highlights an important communications challenge for employers.

According to a report published in February by professional services firm Aon, one in five UK schemes is seeing members cut back on what they put in. And this isn’t surprising – between offsetting the rising cost of food and bills, and uncertainty around how the wider economic climate might impact individuals, pensions contributions are an easy target. But what’s the cost to employees’ future selves?

People should be encouraged to make the decisions that are right for them (even if that’s not the choice you’d expect it to be!). But the best decisions can only be made when people have all the facts. And this is the challenge for employers.

We hear so much about the importance of financial wellbeing, and the positive role employers can have in helping their colleagues build financial resilience – and in turn, their overall wellbeing. Providing education around pensions is a prime example of that.

Different communications for difficult times

Nobody wants to be the bearer of bad news – and financial reward is an easy positive message. So naturally, communications on workplace pensions usually highlight the benefits: save now for a better quality of life later; employer contributions; tax benefits.

But right now, the cost of living crisis is making colleagues think about cutting back on their contributions, if they’ve not done so already. If you want to appeal to your people, your messaging needs to reflect their concerns. Acknowledge that pension contributions have an impact on their income now – but that they will have a positive impact on their income and quality of life later.

Define how reducing contributions – or stopping them altogether – will impact their retirement. Use worked examples to show the impact on their retirement income and spell out their option: making up the shortfall by paying more later or retiring later.

It may also be worth pointing out what colleagues stand to lose. If they opt to reduce or stop their contributions, their employer’s contribution may also drop. They may not have considered that they’ll lose the tax relief they get on pension contributions, and potentially life assurance too.

This might go against the grain. But education and transparency will help your colleagues see the bigger picture. It empowers them to understand their options, so they can make an informed decision that’s right for them.

The long and short of it

The Aon report also found there’s been a 43% rise in the number of concerns and questions around investment performance. This provides insight into the communications colleagues will want before making decisions about their financial future.

The macro-economic climate has been turbulent recently, and volatility can be unnerving. Stock markets generally grow over time, so unless someone is looking to retire imminently, most downturns should not be a cause for concern.

To address these concerns and questions, consider providing education in investment performance over time. Explain that a downturn could be positive if it enables the pension plan to purchase more shares at a lower cost – which would be beneficial in the long term. Providing colleagues with bite-sized information so they can understand what to expect, and allay any fears.

Don’t make assumptions

If all of this sounds obvious, remember that for many people – it isn’t. It’s likely many of your colleagues don’t have the confidence and knowledge to understand their workplace pension. In fact, 53% of millennials wish their employers would better explain pensions to them.

The key is to educate colleagues around all aspects of their pension – how they work, why they’re important and how much money is needed for different levels of comfort in later life. Empower them to make the right decision for them by providing a clear overview of their options, with information around the benefits and challenges for each. The key is to make people aware of the implications of their decisions – ideally before they make their choice.

If they’re among the 20% considering stopping their contributions, being armed with this information can help them decide if this is right for them. And even if they’re not, financial education will help your colleagues build their own financial resilience for the longer term – and that’s always a positive.

Do you need help communicating your workplace pension in a way that educates, inspires and engages? We’d love to help you. Get in touch today.

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